One of the biggest risk factors involved in operating an importing or exporting business is that while your sale is in progress the value of a foreign currency may change relative to the value of the U.S. dollar. This means some of your export profits can get lost in translation.
Overseas buyers typically pay in their own currency, which is then exchanged for dollars before it’s deposited in your bank. Here’s an example: You thought you were going to get $500,000 for that shipment of wooden chairs your company exported to France. But by the time your goods make their way overseas on a barge and the buyer takes delivery, the dollar has weakened against the euro and you end up only getting $460,000.
On the flip side: Instead of weakening, the dollar strengthens suddenly against the currency your buyer uses. By the time your merchandise arrives, it costs the buyer more in the local currency to equal the dollar value you agreed upon, and now the buyer doesn’t want to take delivery and close the sale.